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kaavya says

I don’t get answer for the question below.Would you please help me to solve it?

An organisation operates a piecework system of remuneration, but also guarantees its employees 80% of a

time-based rate of pay which is based on $20 per hour for an eight hour working day. Three minutes is the

standard time allowed per unit of output. Piecework is paid at the rate of $18 per standard hour.

If an employee produces 200 units in eight hours on a particular day, what is the employee’s gross pay

for that day?

A $128

B $144

C $160

D $180

John Moffat says

Because the standard time is 3 minutes per unit, the total standard time for 200 units is 200 x 3 / 60 = 100 hours. They are paid 18 per standard hour, which gives a total of 100 x $18 = $180.

The guaranteed minimum is 8 hours x $20 =

$160, but this is lower than $180 so the pay is $180.

Hope that all makes sense

bentzion says

By the way, 200 X 3/60 comes to 10, not 100 (and 10 x 18 = 180)

Anyhow, if it’s an 8 hr day, how can he be paid for working 10 hrs?

thanks?

John Moffat says

OK – sorry, it was a typing mistake (but the answer is the same).

The reason he is paid for 10 hours is because he is being paid for piecework – he is being paid according to how many units he manages to produce. He does not work for 10 hours, but because he produces as many units as he does, the time allowed (the standard time) is 10 hours and so this is what they will pay him for.

It is a very sensible way of paying workers – to tell them that the faster they work (and therefore the more they produce) then the more they will be paid.

kumara says

i did it another way which i think is less complicated and less time consuming as well.

i’ve been looking for the variable cost per unit= {(170000-5000)-13000}/22000-160000=$5

TC= 135,000

VC= (80,000) =(16000*$5)

FC= 55,000

@20000 units= FC+SF+VC

55,000+ 5,000+(20,000*5) =$160,000 Ans

we avoid that part of 16000units and 4000unit and with that we need to add the SF its confusing rather work it as a whole. its my point of view but the lecture is very nice. thanks

Jide says

Sorry please can u help confirm, is the answer option B or D?

Thanks

John Moffat says

The answer to which question?

Jide says

Sorry, answer to question 5 on the cost classification part b test questions. It is B, right?

John Moffat says

Yes – B is the correct answer.

(Both lines must go through the origin (0) because the lower price applies to all units already purchased)

Dipty says

Hi. I can’t understand the explanations for question one. Why is the extra 5000 deducted from the difference in cost? Is the difference in cost always a fixed cost? When it says exceeds 17500 units, is it in the total or the highest activity level only?

John Moffat says

As I explained in my answer to your question yesterday, the difference is usually due to the extra variable cost of the extra units – the total fixed costs normally stay fixed (by definition).

However, in this question there is a stepped fixed cost – the fixed cost increases when the activity is more than 17,500 units.

Since the higher of the two activity levels (22000) is higher than 17500, the fixed costs must be higher than the fixed costs at the lower level (16000).

So….since the step up is $5000, then $5000 of the difference is due to the higher fixed costs. The rest of the difference is, as normal, the extra variable cost of the extra units.

Dipty says

hello! I cant understand the high low method! Is there any in depth but basic explanation regarding it? or may be an easier example? Thanks.

John Moffat says

Just suppose that you make 10,000 units and the variable cost is $5 per unit and the fixed cost is $10,000.

Then the total cost is (10000 x $5) + $10,000 = $60,000.

Suppose next month you make 15,000 units. Why should the total cost change? The fixed cost will stay the same, and so the only thing that will change will be the variable cost – an extra $5 for each unit.

So the total cost would not be (15,000 x $5) + $10,000 = $85,000

All we are doing with high/low is the same thing backwards.

The total cost went up by $25,000. The number of units went up by 5,000. Since the only reason for the increase is due to more variable costs, it must mean that $25,000 is the extra variable cost for the extra 5,000 units. So the variable cost per unit is $25,000/5,000 = $5 per unit.

heng says

Hi John,

From the course note in chapter 4, page 17- there got mentioned about the Responsibility centres:

a) cost centres

b) profit centres

c) revenue centres

d) investment centres

Why do we need to know about these responsibility centres?

Thank you.

John Moffat says

Because it affects the way that we measure the performance of the centre and of the managers.

(If you want me to answer your question then please in future ask in the Ask the ACCA Tutor Forum for Paper F2)